Equal Pay for Equal Work

Once again equal pay for men and women doing presumably equal work has become a live political issue. If Congress can achieve fair pay by passing still another law, why not?

But what is equal work? Is it the same numbers of hours spent? Is it work in the same industry or other category, broadly or narrowly defined? Is it work typically done by people with similar levels of education as proxied by diplomas and degrees? Are what economists call “compensating differences” unfair — differences in pay for work considered particularly risky or boring and work found attractive in itself? More plausibly, does fair pay mean equal pay for work appearing to promise the same addition to the revenue or profit of a business firm? If so, as judged by whom? Without attention to availability, productiveness, and costs of materials, energy, and other things bought, including the many kinds of labor, a firm would go broke.

More equal-pay legislation will add to the burdens already borne by business firms, perhaps especially small businesses.

An economic system coordinated otherwise than by market transactions and the interplay of prices, profit, and loss would be very different from the system that has brought prosperity to the Western world. A market economy puts to good use vast amounts of knowledge both specific and widely dispersed. This knowledge, as well as informed conjectures, exists in the minds of millions and billions of consumers, employees, job candidates, entrepreneurs, and owners and managers of business firms and other organizations. Knowledge of how to conduct and mesh their activities simply could not be centralized for effective use by planners and regulators. The writings of Mises and Hayek (and, earlier, Henry George), reinforced by experience in Communist countries, have taught us this lesson. Even if, per impossibile, this knowledge could be centrally deployed, politicians would have incentives to disregard much of it.

Business owners and managers, sometimes aided by specialist consultants, can best judge how to structure their workplaces and employ the people most likely to contribute to profits. Supply and demand interacting on markets, including the labor market, contribute to these judgments. Business losses tend to weed out bad judgment of these kinds, while profits tend to reward good judgment.

Employers must judge how likely employees or job candidates are to fit in well with their businesses. How likely is a person to be available for working long or irregular hours on short notice or for shifting among assignments and geographical locations? How committed is the person to a career, or how likely to quit or interrupt work for family or other reasons or to request many hours or even months of paid or unpaid leave? How likely is the person to generate profitable new ideas? How likely to get along well with customers, colleagues, and supervisors? Or how likely to prove obnoxiously litigious? A good matching of jobs and employees benefits all concerned.

Realistically, of course, employers cannot have all the detailed and ineffable knowledge necessary for ideal decisions. They must make judgments based on categories, experience, probabilities, statistics, and hunches, and perhaps sometimes even on stereotypes. These regrettable gaps in knowledge are not blameworthy or avoidable, although detailed experience and practiced intuition may shrink them. The system of markets, profit, and loss tends, at least, to reward or punish good or bad business judgment; nothing similar weeds out bad legislation.

Government regulators drift into thinking that their own work is important.

More equal-pay legislation will add to the burdens already borne by business firms, perhaps especially small ones. These will include the burdens of keeping records of and reporting on job interviews held or not held, performance reviews, job categories and modifications, and innumerable other things. Risks compound the burdens, including risks of being second-guessed about honest judgments and of dubious statistics being manipulated to infer violations of rules even in the absence of evidence. Government regulators drift into thinking that their own work is important and into eagerly receiving and investigating complaints. Aggrieved employees have additional ways to browbeat their employers by threatening to file complaints or lawsuits. Opportunities for lawyers multiply.

The burdens placed on job creation are heavy already. They apparently help account for the disappointing growth in employment as recovery from the recession continues only sluggishly.

Yet far from being morally obliged to bear such burdens and risks, businesspeople are under no obligation to be in any business or hire any workers at all. Even employing job candidates willing to work for less pay than others appearing similarly qualified is a service to workers and the public (even if a less noble service than one might wish). Employing anybody increases the scarcity value and the job and pay prospects of the rest of the labor force. Employers practicing discrimination unrelated to the value of employees’ work suffer the penalty of reduced profit and lose ground to firms showing sounder business judgment.

Speaking of fairness, how fair is it to draft businesspeople more and more into unpaid and thankless service as social-welfare agencies and as scapegoats?

Making a political issue of “fair pay” expands opportunities for politicians and demagogy. It illustrates how superficial bright ideas can get casually inserted into laws, notably into laws running hundreds or thousands of pages. As Thomas Sowell has explained, being both economically literate and honest is a disadvantage for a politician. (An economically illiterate one can honestly advocate bad but popular legislation, while a dishonest politician may gain votes by concealing his economic understanding.)

My message, in summary, is dismay at ignorance or disregard of how essential using widely dispersed specific knowledge is to a prosperous economy.